Producer Prices Post 1.1% Jump

By ROBERT D. HERSHEY Jr., Special to The New York Times

Published: November 10, 1990

WASHINGTON, Nov. 9—
Prices at the producer level, a prominent inflation gauge, jumped more than expected in October as oil prices continued to escalate, but economists generally took the numbers in stride.

The advance in the Producer Price Index for Finished Goods was a high 1.1 percent, the third consecutive month with a rise above 1 percent. Economists noted, however, that the Labor Department's report today showed no change in producer prices when energy and food, which are subject to big gyrations, were excluded.

The report, in fact, was seen by many as strengthening the case for the Federal Reserve to push short-term interest rates down another notch to counter what is widely seen as incipient recession. Reaction in the Markets

Financial markets rallied today, apparently in expectation of lower rates. Oil prices fell, with the contract for December delivery down $1.64, to $33.89 a barrel, on the New York Mercantile Exchange. [ Page 32. ]

"The flat core rate ought to cool off some of the inflation psychology that's flying around out there," said Ron Schreibman, vice president of the National Association of Wholesaler-Distributors, a trade group whose members pay the prices measured by the index for finished goods. Those prices are one step removed from the consumer level.

The core, or underlying, rate is what remains when economists strip away volatile components, generally energy and food, that can mask the basic inflation trend. Oil prices have doubled since August even though the loss of Iraqi and Kuwaiti oil has now been entirely offset by higher production elsewhere. Fed Committee to Meet

Analysts said the lack of any underlying inflation at the producer level last month would certainly be noted by the Fed's Open Market Committee when it meets on Tuesday to decide on monetary policy tactics for the next five weeks. It was thought quite possible, however, that the committee's 11 voting members would decide to defer any rate cuts until they see what happened to inflation last month as measured by the broader Consumer Price Index. Unlike the producer index, the consumer index includes services and imported goods.

The general expectation is that the rise in consumer prices approached 1 percent last month, with the underlying rate climbing about half as much as the overall index.

Although there is wide agreement that factors like drought and the risk of war do distort price data, there is considerable resistance among economists to the notion of entirely disregarding these special factors when assessing inflation risks.

The soaring price of oil, for example, has a powerful effect on sentiment and forces people to react "just as though it's permanent," contended Paul W. Boltz, vice president and financial economist at T. Rowe Price Associates in Baltimore. Even though the higher prices of such goods may be the result of special or "artificial" factors, consumers do pay those higher prices, adding to pressure to try to recover this lost purchasing power through higher wages.

On Tuesday, the department reported that hourly compensation increased at a 4.4 percent annual rate in the third quarter, down from a 5.4 percent rate of increase in the second quarter, an indication that worrisome wage pressures are not imminent.

Today's report showed that the finished-goods index rose two-tenths of 1 percent when only energy -- rather than energy and food -- was excluded. The energy component, which accounts for 9.2 percent of the index, climbed 8 percent in October after jumping 13.8 percent in September and 9.5 percent in August.

The two other principal indexes of producer prices, those covering goods at the intermediate and crude stages of production, were also driven sharply higher last month by energy.

In the production of, say, clothing, raw cotton would be considered a crude material, a bolt of cloth an intermediate material and a suit or dress the finished goods.

All three stages have posted overall increases of more than 1 percent for each of the last three months.

Among finished goods, the 8 percent rise for gasoline and 15 percent rise for heating oil was considerably less than in August and September, but food rose nine-tenths of 1 percent after falling by that amount in September. Higher prices were posted for beef and veal, pork, eggs, and fresh and dried vegetables; prices fell for processed chickens, roasted coffee, fish, dairy products and shortening and cooking oils.

Among intermediate goods, where energy components climbed 8.4 percent, nondurable manufacturing materials, like paints and fabrics, rose 1.3 percent, while prices of items for making durables were unchanged.

In crude goods, prices turned up for food and feeds after falling for two straight months, but basic industrial materials, like copper scrap and iron and steel scrap, fell far more than in September. Energy goods soared 18.7 percent last month after a 12.4 percent rise in September and a 25.5 percent rise in August.